As Warner Bros. Discovery moves out of the regional sports network business by the end of the year, the company is reallocating its resources to more effectively compete for ratings and revenue in sports media. On a recent investor call, the company’s chief executive officer, David Zaslav, conveyed that all of the networks would be sold or shuttered in the coming months. The regional sports networks, had they been unable to return teams their broadcast rights, would have entered bankruptcy under Chapter 7 liquidation.
With numerous sources of data reporting a rise in streaming over cable and broadcast television consumption, the company is aiming to expand its offerings available on Max. The streaming platform, which was heavily advertised and promoted at the entity’s Upfront event in May, could soon be the streaming home of several professional sporting events. Currently, Major League Baseball, National Basketball Association and National Hockey League contests are televised on its linear networks – most notably TNT and TBS – without a viable digital offering. Moreover, the enterprise has the rights to NCAA March Madness and inked an eight-year deal to broadcast U.S. soccer games and stream some of them exclusively on Max (then-HBO Max).
Executives are considering adding a sports tier to the novel service, which could potentially engender a rebound after its parent company lost 1.8 million streaming subscribers last quarter. Total streaming subscribers, when combined with other outlets such as discovery+ and HBO, total 95.8 million people. Max launched on May 23 and has yet to amass complete data over multiple quarters.
We are… a global leader in sports, including great sports rights from many of the top leagues in the U.S. that, in many cases, run through 2028 and beyond,” Zaslav said, who hopes to secure NBA rights for the long term. “We have the best digital and social sports platform for younger fans in Bleacher Report and we have significant digital rights in the U.S. that we’re not currently deploying but plan to in the future, and that has a real chance to create meaningful strategic value.”
Working in its favor is the fact that Warner Bros. Discovery has digital rights to all of its sports content, evidenced through innovative and multifaceted purposing of content within its various subsidiaries. Launching this capability could also be enticing to the NBA as its national media rights agreement expires at the conclusion of the 2024-25 campaign. Association Commissioner Adam Silver has been candid about his desire to expand the burgeoning partnership to include over-the-top (OTT) services while also maintaining a linear television presence.
“We’re going to use our sports domestically and globally to create more shareholder value,” Zaslav said, “and help the leagues who all are very interested in reaching more people [and] more demographics.”
According to its latest balance sheet, direct-to-consumer services over the last quarter operated at a loss, consistent with the decline in total subscribers. Conversely, the adjusted EBITDA is $2.17 billion (-7% year-over-year) after generating $5.76 billion in revenue despite a small decrease in distribution revenue due to price adjustments in affiliate rates. Total advertising revenue for the quarter was down 13% – excluding FX – a figure that the company affirms was partially offset due to TNT’s presentation of the Stanley Cup Final.
“I’m very encouraged with the results that effectively breakeven EBITDA and quite a bit better than we expected, notwithstanding the significant investments in the development and marketing of our new Max platform in the U.S.,” Warner Bros. Discovery Chief Financial Officer Gunnar Weidenfels said. “Quarter 2 nicely demonstrates the underlying traction and efficiency from the integration of legacy direct-to-consumer operations and organization.
The sports tier would likely be priced higher than other content, aligning with an approach the company has taken internationally for some of its content. Through this, it hopes to further broaden the scope of offerings available to different sectors of the consumption marketplace.
“I think generally, our view is sports is such a premium offering with a very focused and passionate fan base,” Warner Bros. Discovery Global Chief of Streaming JB Perrette said. “But generally, the model will require some way to find [and] need to find incremental value to get out of it. And so exactly how that comes to market, we will have more to say later in the year, but generally, our view is that it needs to be monetized incrementally.”
